If anyone gets ticked about this, think about the downgrade like this...
Imagine for a moment you carried a $14 trillion dollar debt, and the only thing you do is pay off the interest rate. As time keeps moving forward, you
keep raising your debt limit to borrow more. Even though you may be paying the interest on your loans (or credit cards), you never-ever pay anything
onto the principle balance.
Now, you wake up one day, and you notice something is wrong. After checking your revenues (GDP and Taxes), you realized that they total exactly how
much you owe in debt. Since you need those revenues for something else (social services, government paychecks, etc...), you cannot tap enough of it to
pay the interest on outstanding loans. As your loans keep gaining in interest, the amount you take in can no longer cover the minimal payment. Other
words, the interest on your loan starts to outweigh your assets and revenue.
What that all means is simple. If you cannot cover the minimal balance due each month (the interest), you will never be able to pay anything on your
Technically, raising your credit limit (debt ceiling) ended up breaking the bank, for it caused the interest rate on your credit card (loans to other
countries) to be raised at the same time.
More money you borrow = the more interest you owe.
On top of all this crap, you have domestic liabilities to pay. Employees, telephone, power, water, roads, health care, health care for employees,
social services, defense, etc... So, what gets cut from your liabilities, so you can start paying off the principle balance of your loans? Your bank
(China) is now screaming for a repayment on your loans. What do you do?
I am surprised the S&P dropped the credit rating to an AA+.
I would have lowered the credit rating to at least a C+.
edit on 8/5/2011 by Section31 because: (no reason given)